Correlation Between CAVA and Cracker Barrel

Can any of the company-specific risk be diversified away by investing in both CAVA and Cracker Barrel at the same time? Although using a correlation coefficient on its own may not help to predict future stock returns, this module helps to understand the diversifiable risk of combining CAVA and Cracker Barrel into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between CAVA Group and Cracker Barrel Old, you can compare the effects of market volatilities on CAVA and Cracker Barrel and check how they will diversify away market risk if combined in the same portfolio for a given time horizon. You can also utilize pair trading strategies of matching a long position in CAVA with a short position of Cracker Barrel. Check out your portfolio center. Please also check ongoing floating volatility patterns of CAVA and Cracker Barrel.

Diversification Opportunities for CAVA and Cracker Barrel

-0.7

Correlation Coefficient

CAVA  Cracker Barrel

Excellent diversification

The 3 months correlation between CAVA and Cracker is -0.7. Overlapping area represents the amount of risk that can be diversified away by holding CAVA Group and Cracker Barrel Old in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Cracker Barrel Old and CAVA is a relative statistical measure of the degree to which these equity instruments tend to move together. The correlation coefficient measures the extent to which returns on CAVA Group are associated (or correlated) with Cracker Barrel. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Cracker Barrel Old has no effect on the direction of CAVA i.e., CAVA and Cracker Barrel go up and down completely randomly.

Pair Corralation between CAVA and Cracker Barrel

Given the investment horizon of 90 days CAVA Group is expected to generate 1.26 times more return on investment than Cracker Barrel. However, CAVA is 1.26 times more volatile than Cracker Barrel Old. It trades about 0.11 of its potential returns per unit of risk. Cracker Barrel Old is currently generating about -0.09 per unit of risk. If you would invest  4,382  in CAVA Group on February 28, 2024 and sell it today you would earn a total of  3,911  from holding CAVA Group or generate 89.25% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Weak
Accuracy	100.0%
Values	Daily Returns

CAVA Group  vs.  Cracker Barrel Old

CAVA Group

Risk-Adjusted Performance

15 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in CAVA Group are ranked lower than 15 (%) of all global equities and portfolios over the last 90 days. Despite somewhat conflicting basic indicators, CAVA sustained solid returns over the last few months and may actually be approaching a breakup point.

Cracker Barrel Old

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Cracker Barrel Old has generated negative risk-adjusted returns adding no value to investors with long positions. Despite conflicting performance in the last few months, the Stock's basic indicators remain quite persistent which may send shares a bit higher in June 2024. The latest mess may also be a sign of long-standing up-swing for the company institutional investors.

Pair Trading with CAVA and Cracker Barrel

The main advantage of trading using opposite CAVA and Cracker Barrel positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if CAVA position performs unexpectedly, Cracker Barrel can make up some of the losses. Pair trading also minimizes risk from directional movements in the market. For example, if an entire industry or sector drops because of unexpected headlines, the short position in Cracker Barrel will offset losses from the drop in Cracker Barrel's long position.

The idea behind CAVA Group and Cracker Barrel Old pairs trading is to make the combined position market-neutral, meaning the overall market's direction will not affect its win or loss (or potential downside or upside). This can be achieved by designing a pairs trade with two highly correlated stocks or equities that operate in a similar space or sector, making it possible to obtain profits through simple and relatively low-risk investment.

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Note that this page's information should be used as a complementary analysis to find the right mix of equity instruments to add to your existing portfolios or create a brand new portfolio. You can also try the Portfolio Comparator module to compare the composition, asset allocations and performance of any two portfolios in your account.